Tuesday, 17 Feb, 2026
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The new CPI better reflects current spending patterns. The weight of food and beverages has fallen to 36.75% from 42.86% in 2012, while housing has risen to 11.88% from 10.07%. The index has also broadened from six to 12 divisions
India’s retail inflation stood at 2.75 per cent in January 2026—comfortably below the midpoint of the Reserve Bank of India’s (RBI’s) 2–6 per cent target band. At first glance, the numbers signal price stability and policy comfort. But January also marked the rollout of a new Consumer Price Index (CPI) series, and that shift changes how inflation must now be read.
The National Statistics Office has updated the CPI base year to 2024 from 2012, revising weights and expanding the basket. The result: a headline number that looks benign, but a structure that suggests inflation dynamics are evolving.
A recast consumption basket
The new CPI reflects how Indian households spend today, not a decade ago. Food and beverages now account for 36.75 per cent of the basket, down from 42.86 per cent in the 2012 series. Housing carries a higher weight of 11.88 per cent, up from 10.07 per cent earlier. The index has also expanded from six to 12 divisions.
These changes make direct comparisons with the old series misleading. December 2025 inflation under the old series was estimated at 1.33 per cent, but officials stress that the two series are not comparable because of changes in weights and methodology.
In effect, the new CPI lowers the relative dominance of food and increases the role of services and housing—potentially making inflation less volatile but more persistent.
Food: A narrow rebound
After seven months of food deflation under the old series, the Consumer Food Price Index rose 2.13 per cent in January. The rebound, however, was concentrated.
Tomato prices surged 64.8 per cent year-on-year, driving much of the increase. But other vegetables remained in steep deflation: onion prices fell 29.3 per cent, potato 29 per cent and garlic 53 per cent. The broader food picture remains uneven.
Rural food inflation was 1.96 per cent, slightly lower than urban food inflation at 2.44 per cent. Overall headline inflation showed little rural-urban divergence—2.73 per cent in rural areas and 2.77 per cent in urban India.
The message: food prices are no longer falling, but nor are they surging across the board.
Housing enters the frame
A key structural shift is the inclusion of rural house rents. Rural housing inflation stood at 2.4 per cent in January, compared with 1.9 per cent in urban areas. Rural rent inflation itself was 3.2 per cent, higher than the 1.9 per cent recorded in cities.
The combined housing inflation rate was 2.05 per cent. With housing now carrying greater weight, it could shape inflation trends more strongly in future months. Unlike vegetables, rents do not swing wildly — they move gradually, and often upward.
That could make inflation more stable, but also more sticky.
Core inflation and the gold effect
Core inflation—excluding food and energy—came in at 3.4 per cent. Under the old series, it would have been around 4.15 per cent. A major reason is the reduced weight of gold in the CPI basket, now 0.62 per cent compared with 1.08 per cent earlier.
However, one category stood out sharply: personal care, social protection and miscellaneous goods recorded inflation of 19.02 per cent, largely due to soaring precious metal prices. Education services also rose 3.35 per cent.
Ten of the 12 divisions, though, saw inflation below 3 per cent—suggesting price pressures remain broadly contained.
Regional divergence
Inflation varied across states. Telangana recorded the highest inflation at 4.92 per cent, followed by Kerala (3.67 per cent), Tamil Nadu (3.36 per cent), Rajasthan (3.17 per cent) and Karnataka (2.99 per cent). Manipur had the lowest reading at 0.12 per cent, with rural areas there experiencing slight deflation of 0.43 per cent.
Such variation reflects differing consumption patterns and local supply conditions. National averages smooth over these disparities.
RBI: Pause, not pivot
At 2.75 per cent, inflation is well below the RBI’s 4 per cent midpoint target. That supports expectations of a prolonged pause in interest rates rather than aggressive easing.
Yet the comfort may be temporary. With the base effect fading and food prices turning positive, inflation is projected to rise to around 3.2 per cent in February. That remains within the target band but reduces room for policy manoeuvre.
India’s growth challenges—stagnant real wages, modest corporate revenue growth, margin pressures and a weaker rupee—are structural. Monetary easing alone cannot address them. If inflation drifts upward, the central bank’s pro-growth stance could face constraints.
For now, the new CPI series does not alter the Reserve Bank’s policy direction. But it does change the inflation lens.
Calm before the climb?
January’s print offers reassurance: inflation is moderate, broad-based pressures are limited and most categories remain under control. But the structure of inflation is shifting. Food volatility persists. Housing is gaining prominence. Precious metals are distorting select categories. Regional differences are pronounced.
With another inflation print due before the next monetary policy meeting, and a new GDP series expected soon, policymakers will gain clearer insight into the growth-inflation balance.
For the moment, India appears to be in a stable zone. Whether that stability holds— or gradually gives way to firmer price pressures—will depend less on the headline number and more on the underlying trends now reshaping the inflation story.
